– How does a foreign national start his small or medium business in Russia?
– Do you mean the procedure, list of necessary documents?
– ...is it easy or difficult?
– Without the proper preparation, very difficult.
– What are the problems?
– First stages of business development in Russia are very expensive. The level of expenditure is very high. When I worked as a lawyer, I always warned businessmen: if you have only 25, 50 or 100,000 Euros to spend on such an undertaking, you'd be better off saving that money and not taking any such course of action.
– Too small an amount?
– The amount of money is not the issue here but rather how much more do you have? And that, in my opinion, is one of the major mistakes: people don't take all the risks into consideration. The worst thing is when someone begins to invest funds only to realise that he needs to invest more. But he doesn't have any more money. You absolutely have to have a “safety net”: a financial reserve to cover any risks you haven't considered from the start. Unfortunately, I know of quite a few examples where businessmen didn't have such a “safety net”.
– Do future revenues justify such investments?
– Yes, they do. The income of successful businessmen in Russia is often higher than in Europe. At times, substantially higher. On the one hand, there is a developing market here. Its potential is completely different from that of Western Europe: there are many untapped niches on the Russian market, businesses which, with the right approach, can bring good returns. On the other hand, Russia is a very wealthy country; it is just that, at times, money isn't used here in the way in which it should be.
– What does a European, from Germany for example, know about this?
– Me or a normal German? (Laughs).
The income of successful businessmen in Russia is often higher than in Europe. At times, substantially higher.
– A German living in Germany.
– He knows, unfortunately, virtually nothing. And doesn't understand. A serious obstacle is not knowing the language. And the subsequent reliance on business partners to explain the particularities of conducting business. Which is fine, if they are honest people...
– But how do you go about choosing business partners in Russia?
– For a small or medium business owner it will be very hard without a Russian partner. He should approach his selection very carefully; something which, as a lawyer, I notice doesn't happen in the majority of cases. Our people believe that if you have drunk vodka together that you are already real friends. But even if the word “friend” was ringing throughout the conversation, legally speaking, it means nothing at all. The reputation of the person or the company with which you are intending to cooperate is very important. It is essential that you look into their history, obtain recommendations... That is the normal thing to do. If you were looking for a partner in your own country, you would try to find out more about them beforehand and wouldn't go looking for them on the street.
The reputation of the person or the company with which you are intending to cooperate is very important.
– Where should a small or medium business owner, considering embarking upon a venture in Russia, turn to for advice?
– To the Association for Economic Cooperation with the Countries of Eastern and Central Europe, of which I am the head. Or to the Russian-German Chamber of Commerce, the Russian Chamber of Commerce and Industry...
One shouldn't forget about sharing experience. Find those who are already doing business in Russia and ask them: how did you start off, what did you do, what would you recommend, who do you turn to for help, where do you go for consultation? Or, where don’t you go under any circumstances? These are, it seems, all subjects of your magazine, are they not?
If you decide not to do business with each other, that's fine. Just as in life: there were many women around me but I chose only one to be my wife.
– Yes, that is right. These are the fundamental questions we put to our heroes. And to you. And our next question is: how does a person with poor knowledge of the Russian market and the Russian language safeguard himself from financial risk?
– It is necessary to set out, with all possible care and attention, the rules for carrying out business and the division of powers with your partner. And you should do this before formalising your relations legally. Unfortunately, with medium businesses, and all the more so with small businesses, this isn't done. They immediately sign a typical agreement they have found on the Internet and start to work... But a typical agreement doesn't guarantee smooth operation.
The most important thing is to come to an agreement with your partner on all nuances of your common cause. You should discuss openly all possible situations and potential disagreements. Clearly explain to one another what you and he need from the business, how you intend to develop it, to find out in detail your partners desires and capabilities, and talk about yours. And, if after that you decide not to do business with each other, that's fine. There is nothing terrible in that. Just as in life: there were many women around me but I chose only one to be my wife...
– When should you call a lawyer?
– Only after you have come to a final agreement. The lawyer's task is no more than to articulate your arrangements in a legally-binding document. But if there is no content, then what is there to articulate?
– What, in your opinion, is the attitude of the Russian government towards foreign investors, businessmen, who are operating in Russia?
– Discussions during Russian investment forums are more often about how to attract foreign investors into the country, and rarely mention the kind of problems foreign businessmen or investors encounter once they have set up their companies in Russia. I stress: their companies are Russian residents, started and registered according to Russian law, but with foreign founders and capital.
– It is precisely this to which our magazine is dedicated...
– It is a very important and serious topic. Politically and economically speaking, the Russian government is interested in investments. But in reality, this, in general, for the time being, concerns only large investors. They report in the investment forums: 1.5 billion, 2 billion were attracted... Do you think these are small or medium-sized investments? No. The overwhelming majority of them are large.
If a person has any sense and he wants to, and knows how to, work, then it is always possible to find a market niche for a business in Russia.
– But what about a small or medium foreign business in Russia?
– It starts and develops only thanks to its own efforts. Let me give you an example. My wife is German. She is a translator, who speaks Russian. And she has registered her company, a translation agency, in Russia. She did it herself without any lawyers. My wife, of course, is fluent in Russian. This helped her a great deal. She went herself to the tax authority and other institutions (I didn't have the time to help her). And then she told me how they had behaved towards her: absolutely normally, with goodwill, and quite properly. And today her business is developing successfully; she receives orders regularly, pays taxes according to Russian law. And she has cultivated excellent relations with the inspecting authorities as well as the tax office.
If a person has any sense and he wants to, and knows how to work, then it is always possible to find a market niche for a business in Russia. It worked for my wife. But I cannot say that this is a rule and that it will work for absolutely anybody.
– Our next question is precisely about rules. Russia's image and reality. To what extent does what people in Europe or America think about Russia, about the rules for conducting business, correspond to actuality?
– In actual fact, foreigners know virtually nothing about Russia or what goes on here... As a well-known TV person said to me, if the editor of the evening news can only cover 14 news stories and has to choose them from out of over 7,000, then from the Russian news section the story which makes it to air won't be the one about the good policeman helping an old lady across the street. If, however, the policeman delivers somebody a whack with his truncheon, then viewing figures for that story will be higher, and it stands a better chance of being broadcast. That's a given. That's how the media operates all over the world. There is another very important aspect. If a businessman who has worked in Russia makes a mistake and is ruined, then what is he going to say when he gets home? He is hardly likely to admit “I made a mistake.” He is going to say “That's Russia for you! You know!” And all of the board members of his company in Germany will agree with him because that is a very convenient way of explaining failure.
I worked as a lawyer in Russia, and I know that the reason for most failures of businessmen here is not the local conditions but management errors.
Before I became the head of KNAUF CIS, I worked as a lawyer in Russia for a long time, and I know that the reason for the majority of failures amongst foreign businessmen here is not the local conditions but gross management errors. And personally, I know of only one instance where the director of a large firm who had lost a large amount of investment admitted that the reason behind this lays in the company itself and not in the conditions in Russia. He honestly declared “It was our mistake”. And he expressed a very important idea: “We need to understand why, so as not to allow any similar slip-ups in the future”.